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Negative Rates Just Got Real for a Record Group of Bank Clients

Christian Wienberg, Nick Rigillo and Frances Schwartzkopff

(Bloomberg) -- In the country with the longest history of negative interest rates, a commercial bank just decided to share the cost of the monetary policy with the largest group of retail clients yet.

Jyske Bank A/S, which recently made headlines by offering the first 10-year mortgage at negative coupons, said it had no choice but to drag more retail depositors into its negative-rate plight after Denmark’s central bank cut its policy rate to minus 0.75%. Analysts were quick to point out that the development will help central bank policy feed through to the broader economy.

“Due to the rate reduction last week, we are losing even more money,” Jyske Chief Executive Officer Anders Dam said in a statement. “And we need to share that bill with some of our clients.”

Denmark’s second-largest listed lender said on Friday it will impose a rate of minus 0.75% on all private clients with 750,000 kroner ($111,000) or more. Jyske had already planned to pass on the cost of negative rates to some of its richest retail depositors, but had so far limited the client group it exposed to the policy to people with at least 7.5 million kroner.

Shares in Jyske closed more than 5% higher marking their best performance since December 2017, as investors calculated the impact that the new policy will have on the bank’s net interest income.

Jyske has “set the ball rolling,” said Per Hansen, an investment economist at broker Nordnet. The bank is “taking one for the team and the industry, but also for itself.”

“Everyone’s been talking” about taking such a step, Hansen said. “But no one has dared to take the cost of being a pioneer.”

Here’s What Other Danish Banks Say:

Spar Nord Bank plans to update the market on its policy “by the end of next week,” according to spokesman Leif Lind Simonsen. The bank’s “considerations regarding negative interest rates are of course affected by the fact that several of our competitors have taken the initiative” with private deposits, he said.A Danske Bank spokesman said, “We cannot comment on competitors’ prices and have nothing new to add on the matter.” The bank has previously promised to protect retail depositors from negative rates.Nordea Bank Abp spokeswoman Tenna Schoer said the Danish unit is “monitoring the situation closely.” The bank’s CEO Frank Vang-Jensen has previously said Nordea can’t rule out imposing negative rates on retail depositors.Sydbank, which has already said it will impose negative rates on retail depositors with over 7.5 million kroner, is monitoring the situation. “We have taken note of developments in the market and have seen that interest rates have fallen further,” said Jan Svarre, deputy CEO at the bank. “We’ll investigate our options and where the limit should be, and then we will return and notify our customers directly.”

Rasmus Gudum, a senior economist at Handelsbanken in Copenhagen, said the decision to pass negative rates on to more retail clients “will enhance the transmission mechanism” of monetary policy. “But it’s going to be very interesting to see what the de fact effect on the economy will be. I think we’ll see some kind of effect on consumption and investment.”David Powell, a Bloomberg economist, also weighed in:

“When we look at the euro as a whole, we know that in the aggregate, interest rates have not gone negative for either corporate clients or individual clients. And that is the point of negative rates policy -- that it gets passed on to the real economy in order to encourage businesses and consumers to go out and spend money and save less. ”

Denmark’s biggest lender, Danske, is unlikely to have the freedom to follow Jyske, according to Hansen at Nordnet. He says that imposing such a policy is politically difficult for Danske, given its recent history of financial scandals. The bank is being investigated for a $220 billion money-laundering affair, and has been reported to the police for a separate case in which it overcharged retail investors.

Dam at Jyske has said he expects Denmark to have negative rates for another eight years, after already enduring the policy for roughly seven. Denmark, which uses monetary policy to defend the krone’s peg to the euro, was the first country to push its benchmark rate below zero back in mid-2012.

A number of European banks have already opted to drag some retail clients into the fray, but have limited negative rates to only the very wealthiest of customers. Credit Suisse Group AG plans to impose charges for Swiss franc deposits after imposing a 0.4% fee on euro accounts of more than 1 million euros ($1.1 million), according to a person with knowledge of the matter. Swiss rival UBS Group AG has already said it will introduce negative rates for clients holding more than 2 million francs ($2 million).

Dam, the Jyske CEO, said there’s no guarantee that negative retail rates won’t become more entrenched. In an interview on his bank’s website, he said he hopes it won’t be necessary, but that he “can’t promise” that private customers with smaller deposits will be protected from negative rates.

In Finland, where Nordea is based, the financial regulator has said it’s asking its lawyers to review the legality of imposing negative rates on retail customers. But according to the Danish bankers’ association, Finans Danmark, banks can legally charge negative rates even on retail accounts that are covered by the depositor guarantee. In Denmark, the guarantee kicks in at 750,000 kroner, which is equivalent to 100,000 euros.

(Adds closing share price.)

--With assistance from Morten Buttler.

To contact the reporters on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net;Nick Rigillo in Copenhagen at nrigillo@bloomberg.net;Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net

To contact the editor responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net

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